A new era in the old war between teams and ticket scalpers

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When the Twins moved to Target Field in 2010, says Mike Clough, vice president of ticket sales, they implemented several policies to limit broker activity and ensure that as many seats as possible are directly available to fans.

Ten years ago, when Minnesota became the first state to legalize ticket resale (scalping) without any constraints or regulatory oversight, it set in motion one of the most interesting experiments in free-market economics ever attempted. There were (and still are) detractors who argue that ticket resale is anti-consumer and anti-business. But the argument that won the day was to let unfettered capitalism sort the market out—unleash some competition and let fans decide how much they’re willing to pay to see the Vikings miss a field goal in the last three seconds of a game.

Since then, a lot has changed.

Nowadays, resale is more commonly referred to as the “secondary ticket market,” a term that doesn’t connote opportunistic profiteering so much as the reality that a resale market for tickets will always exist, legal or not, as long as there is a profit to be made.

And there is plenty of profit.

Estimates vary, but most analysts put the size of the secondary ticket market at about $5 billion to $10 billion and growing. In many states, much of this economic activity happens under the table or in the gray shadows of the law. But in Minnesota, ticket resellers are just another business, albeit one that has evolved considerably over the past decade. One can still hear the cry of the old-fashioned scalper —“Tickets, tickets, who needs tickets?”— outside U.S. Bank Stadium or Target Field, but the march of technology is making them increasingly obsolete. As electronic ticketing expands, mobile phones proliferate, and venues, fans and artists all move toward the inevitable — a world without paper tickets; thus the secondary ticket market for concerts, sports, and theater events is increasingly the realm of people like Mike Nowakowski, owner and operator of local ticket broker Ticket King.

The broker hangs on

Nowakowski spends most of his time in front of his computer, buying tickets, repricing them, monitoring demand, and surveying the market for the $5 million in ticket inventory he stewards on any given day. He differentiates himself from larger players on the national market— sites like StubHub, Razorgator, Vivid Seats, SeatGeek, and TicketsNow — because those sites are known as “exchanges,” places where — much like eBay, which owns StubHub — anyone can sell tickets, and the site takes its cut in the form of a transaction fee (from 15 to 35 percent). By contrast, Nowakowski owns 95 percent of the tickets on his site, because his business model is based on buying tickets — from teams, fans, other brokers and anywhere else he can get them — then reselling them for whatever the market will bear.

Making the changing ticket landscape work for your business

Businesses purchase much of the inventory of pro and college athletic tickets. The changing secondary market has, in most respects, given businesses and consumers greater flexibility and opportunity.

Tickets unclaimed by clients or staff can usually be repurposed to the secondary market to recoup at least a portion of the lost investment or sometimes for profit. Online interfaces allow businesses/consumers to manage pricing in real time, as market conditions shift.

Since tickets are often available on the secondary market below the season ticket holder’s price, teams have had to enhance the perks for season ticket holders via food discounts, club venues and special invitation-only events to maintain an incentive for the season ticket commitment.

Electronic ticketing, with the kind of restrictions imposed by the Timberwolves’ Flash Seats, can make it difficult to repurpose tickets to the secondary market, forcing ticket owners into proprietary redistribution channels with pricing restrictions that may not jibe with market conditions. So far, the Wolves are the only local team who make it impossible to resell on the broad online secondary market. Its tactics are being tested in court—the outcome could have precedent for ticket resellers everywhere.

—Adam Platt

“This is as pure a supply-and-demand business as you can get,” says Nowakowski. “The difference is that without people like me, StubHub couldn’t exist.” That’s because a large portion of the tickets offered on sites like StubHub are actually tickets that originate from broker sites like Ticket King. For example, if you use SeatGeek to buy a mid-court seat in Section 111 to a Timberwolves game, chances are that’s the exact same seat listed on Ticket King. “Those sites use our site to fill out their inventory,” Nowakowski explains. “They aren’t our competition, they’re my customers.” The difference: “You’re going to pay more for that ticket at one of those sites, because they’re buying it from me, then slapping their fee on top of that.”

Even though Ticket King is an established business with a brick-and-mortar presence in Minneapolis, St. Paul, and San Diego, Nowakowski’s frustration is that people don’t understand what he does. “The biggest misconception people have about this business is that we have some secret way of getting tickets, like computer bots. We don’t,” he says. “We get our tickets the same way any other fan does; it’s just that we work harder at it, we’ve been doing it for a long time, and we know this market better than anyone.”

The other misconception is that he makes money on every ticket. “The reality is, for every 10 tickets I make money on, there might be 15 or 20 I lose money on,” he says. “I assume all the risk, and only make money if I guess right. Sometimes I do, sometimes I don’t.”

Most people associate the secondary market with providing supply for sold-out, high-demand events. Tickets to popular concerts, Broadway shows and sporting events are now almost always available to anyone who is willing to pay. But when demand outstrips supply too dramatically, the ensuing feeding frenzy can drive prices into the stratosphere.

In October, the Chicago Cubs went to the World Series for the first time in 71 years. Fans flooded into Chicago from all over the country, utilizing a secondary market that allowed them to purchase tickets from as far as Thailand with a home computer or smartphone. The downside of this expansion of availability was the demand market became exponentially larger, which drove ticket prices to a minimum of 10 times face value for what many saw as a once-in-a-lifetime event. Tales of tickets going for more than $10,000 were not uncommon. Better deals could be had on in-person transactions on Craigslist or outside the ballpark, but you needed lots of cash and a tolerance for risk.

Democratizing ticket selling

Risk, for buyers on the secondary market, means not necessarily knowing if the tickets you are purchasing are legitimate, or if the seats are any good, or if you are paying way more than you should. Indeed, reducing risk for the consumer is one of the touted benefits of electronic ticketing over street bartering. The Minnesota Vikings switched to an all-electronic system as part of their move to U.S. Bank Stadium, and according to John Penhollow, Vikings vice president of corporate and technology partnerships, instances of fraud (usually invalid tickets printed from a PDF and sold to people unwittingly) have dropped from 9 or 10 percent every game down to 1 percent.

But e-ticketing doesn’t solve every problem for a venue.

“Unfortunately, people don’t always [do due diligence] on who is selling them tickets,” says Tom Hoch, president and CEO of Hennepin Theatre Trust, which presents Broadway shows, concerts, and other theater events at the State, Orpheum and Pantages theaters in downtown Minneapolis. “They may have bought it from a site that looks like ours, but isn’t. Then, if there is a problem—if the ticket is [counterfeit], or the sight lines are bad, or weather cancels a show—we have to deal with the fallout. They complain to us, but there’s not much we can do, because we didn’t sell them the ticket.”

The combination of paying too much for a ticket and having a bad experience is toxic for his business, Hoch says. “Our goal is to make sure our patrons have a great experience so that they want to come back, and I don’t see where the secondary market helps us fulfill that goal.”

When the Twins moved to Target Field in 2010, says Mike Clough, vice president of ticket sales and service, they implemented several policies to limit broker activity and ensure that as many seats as possible are directly available to fans.

For one, season-ticket purchases are limited to blocks of eight for regional residents and blocks of four for non-residents. All new season-ticket requests are reviewed by management, says Clough, and if something “looks fishy”—if it looks as though someone is trying to skirt the rules to gobble up seats—they’ll investigate. “Our policy is to try not to sell to people whose sole intent is to resell them,” says Clough. “If it happens, sometimes we’ll pull all of their seats. Most vendors get that now.” The Twins also use a variable pricing model in which the ticket price is based on how much demand the team expects for a game.

The goal, says Clough, is to “align ourselves to true market demand,” so that few tickets end up on the secondary market.

In essence, this demand-based pricing means that if tickets to a Twins game start showing up on the secondary market for less than face value, the Twins also must lower their prices to reflect the true demand (or lack thereof) for that game.

Indeed, the secondary market has been a boon to sellers wanting to unload “distressed inventory” they don’t want or can’t use (typically games from season-ticket packages). Tickets for low-demand games are typically sold at a substantial discount. This eats into same-day and near-term sales at the box office, because the public knows lower prices for better seats are available online. It also makes it more difficult for brokers like Ticket King to make much, if any, money from those sales.

“The thing that affects my business most is losing teams,” says Ticket King’s Nowakowski. “And unfortunately, we’ve had a lot of those around here. When the Twins lose, I lose.”

As the Timberwolves found out last year, losing teams that work too hard to stop season-ticket holders from undercutting their pricing model will experience blowback. A group of disgruntled ticketholders sued the team over its 2015 switch to an all-electronic ticketing system called Flash Seats, controlled by AEG Inc., which manages Target Center. The suit has been sent to arbitration, but it has opened a legal argument over what a ticket really is (property rights contract or revocable license?), and the rights buyers have.

“When a fan buys a ticket, they have expectations about what they can do with it in terms of giving it away or reselling it,” says Brian Gudmundson, a partner in law firm Zimmerman Reed, who is representing the plaintiffs in the Wolves case. “There’s nothing wrong with electronic ticketing per se, but when teams starting using it to limit what fans can do and artificially control the market, that’s not right. As we move into all-electronic ticketing, these questions need to be asked and resolved in order to get some guidance going forward.”

A piece of the action

Mobile phones and apps are the new battleground for ticket revenue. And one way teams all over the country are attempting to exert some influence over the secondary market is by encouraging fans to use their mobile app to access a proprietary secondary market rather than outside channels.

‘I need tickets’

It’s late in the season, 10 minutes before the first pitch, and a there’s a guy outside Target Field with a sign around his neck that reads “I need tickets!”

If this fellow really wanted to attend the game, all he would have to do is walk around the corner to the box office, where thousands of seats are available. But he doesn’t. Why?

“He wants to find someone who is willing to sell him tickets cheaply, so he can turn around and sell them a few minutes later to someone else for more,” explains broker Mike Nowakowski of Ticket King. “That’s the way we used to do it. That’s how I got my start in this business.”

—Tad Simons

Enhancing “fan engagement” is the stated purpose of the MLB Ballpark app, since in addition to maintaining your personal inventory of game tickets, the app provides maps of the ballpark, concession menus, special offers during the game and other features. It also allows fans to transfer tickets free of charge. Ticket holders can’t resell their tickets directly through the app yet, but they can use their online season ticket account to print or resell tickets through a StubHub exchange run by Major League Baseball.

Likewise, the Vikings have developed an app that allows fans to pre-order concessions for instant pickup, and may eventually allow them to order concessions delivered right to their seats. The app itself is part of a larger strategy to channel fan interaction with the team through their phone.

“We’re not going to change everyone’s behavior overnight, but our goal is to provide our fans with an easy, frictionless experience through their mobile device,” says Penhollow. The Vikings no longer print hard-stock paper tickets, but fans can transfer tickets to a friend or colleague with a tap of their finger. “There are always going to be reasons why people can’t make it to the game, and the app makes it much easier for people to give their ticket to someone who can use it.”

The Vikings deliberately did not provide any reselling functionality in the app. “We don’t want to get in the middle of those transactions,” insists Penhollow. What the team does do is encourage fans who want to resell their tickets to use a fan exchange run by the National Football League in partnership with Ticketmaster.

“We don’t want people to get burned. Ticketmaster is trustworthy,” says Penhollow, “and we have a good relationship with them.”

Such semi-formal arrangements between teams and secondary sellers are common. The lines between primary and secondary sellers are blurring as well. Ticketmaster is the nation’s top primary-ticket seller, for instance, but it also operates two resale sites, TicketsNow and TicketExchange. Likewise, StubHub made its reputation as the scalper for the digital age, but recently rolled out a new “all-in-one” service offering both primary and secondary tickets on its site. Before StubHub made that move, however, it sued Ticketmaster (and lost) for allegedly trying to prevent people who bought their tickets through Ticketmaster from reselling them through StubHub and other third-party sites.

Anatomy of a Ticket (Re)Sale

On the broker side, keeping pace with technology represents both challenge and opportunity. According to Nowakowski, Ticket King has a Flash Seats app, “and we sell thousands of Timberwolves tickets every year.”

The main way in which technology has changed Ticket King’s business is by redrawing the playing field. “The margins in this business used to be greater, but we made less money [overall],” he says. “Now we sell more tickets and make more money, but the margins are smaller and the field is much more competitive. Consumers can buy tickets anywhere now.”

Still, there’s no science to what he does, Nowakowski insists. He doesn’t use software to track sales or gauge demand for tickets. “The software is in my head,” he chuckles. He prices tickets himself, and uses his experience, his gut, and knowledge of the market to eke out a living on ever-smaller margins, in a business where he actually loses money as often as he makes it.

“What would really help my business the most is a few winning teams,” he says. “It’s been a while since we had that.”

Concert resale: A different ballgame

A ticket is not just a contract for a seat, it is an entertainer’s promise that something of value is going to happen while you’re sitting in that seat. But people see “value” differently, and perhaps nowhere is the issue of legalized scalping more contentious than in the concert arena, where demand for tickets to see top acts such Adele, Beyoncé and Bruce Springsteen drives prices on the secondary market to exorbitant heights.

When a show sells out mere minutes after tickets officially go on sale, fans who can’t get tickets usually blame a blitz of bots and brokers for snapping up all the tickets before anyone else has a chance. The truth is a bit more complicated, says Nowakowski. “Brokers like me always get blamed as the bad guy in these situations, but what the public doesn’t know is that only a fraction of seats are actually available by the time tickets officially go on sale.”

Indeed, a modern concert is a complex choreography of economic logistics and deal-making, most of which happens behind the scenes. To begin with, a certain number of premium tickets are held back by the artists, promoters, venues and sponsors—some of whom try to profit from their access by selling their tickets on the secondary market. Additionally, national touring acts who play Xcel and Target Center sell a large portion of their tickets through pre-sales programs offered through fan clubs, newsletters, credit cards, media outlets, social media and other channels.

Some pre-sale tickets end up on the secondary market for the simple reason that brokers haunt fan clubs and take full advantage of every opportunity they can to score tickets for resale—a practice artists and fans detest. Indeed, many of today’s ticket brokers operate like stockbrokers, using data analytics to predict market demand and spreading their risk over hundreds of different events. Then there are all the individual buyers who purchase, say, four tickets, with the intent of reselling two of them to recoup their costs.

By the time the venue box office officially opens, then, there might only be a couple thousand tickets left for sale to the general public. And as soon as the phone lines open, those are scooped up in seconds by a frenzy of aggressive brokers still looking for tickets, rabid fans dialing in by the thousands and the occasional (albeit illegal) computer bot.

Scalpers often get the blame for high secondary-market ticket prices, but in a free market, many argue, it’s actually the artists and promoters who sow the seeds of their own (or at least fans’) discontent by selling tickets too cheaply so they can sell out the venue quickly, and/or by not providing enough seats to satisfy demand. “In my view, musicians like Adele and Beyoncé and their representatives are 100 percent responsible for the conditions that guarantee a secondary market above face value,” says Mark Perry, an economics professor at University of Michigan-Flint who writes frequently about ticket scalping. “If they priced their tickets closer to their true market value and did a better job of supplying the demand for their live performances, the secondary market they so despise would evaporate.”

Perry points to Garth Brooks as an example of an artist who is marketing his shows logically. In 2014, Brooks matched demand for his talent by providing his fans in Minneapolis with eleven shows, not just one or two. The result, notes Perry, is that the secondary market for those shows was almost nonexistent, “because anyone who wanted to go could get a ticket.” But because most artists play one show in a given city and leave, supply almost never meets demand.

High concert prices get all the headlines, but it’s also true that there are plenty of deals available on the secondary ticket market—for example, when Stevie Nicks performed solo at Xcel Energy Center on December 6 (see infographic). Ticket King’s Nowakowski lost some money that night. “It turns out that when Stevie Nicks isn’t playing with Fleetwood Mac, her tickets are worthless,” he says. “But that’s the way it goes sometimes.”

Fans may not like or completely understand it, but a ticket’s “face value” on the secondary market is just an arbitrary starting point, after which the law of supply and demand determines a performance’s value; it’s really as simple as that. Behind the scenes, however, a complicated dance between opportunity and opportunism plays out every day. Some still call it scalping, but more and more of us simply think in terms of what we’re willing to pay, and hope the event lives up to the price.